In financial and legal language, the bill of exchange has a short name “shares draft”. Unlike an ordinary bill as stated by Payday Loans Kankakee IL, a bill of exchange involves three parties.
The possibility of calculating faithfully by the transfer of pledges appears in a situation when there are all the components for its application:
- the prime holder who has notes receivable is the person who first accepts the securities;
- a creditor who agrees to hold a bill of exchange for payment;
- the drawer of a bill who issued the security to the prime holder, who, after its transfer, is the debtor of the creditor.
A significant point is the stringent consent of the drawer to transfer the securities to a third party.
In short, a bill of exchange allows you to close two promissory notes at once.
Bill of exchange concept
Definition 1
A bill of exchange is a debt security of a fixed form expressing the obligation of the drawer (or a third party) to pay a certain amount of money at a specified time without any terms to the drawer. Bills of exchange are of two types: ordinary bill; bill of exchange.
Definition 2
A bill of exchange (or draft) is a type of bill that provides for the transfer of the obligation to pay the person who issued the bill of exchange to the person who is his debtor, to a third party – the holder of the bill.
The difference between a bill of exchange and an ordinary bill consists in the number of persons participating in the transaction (for a bill of exchange – two, for a bill of exchange – three);
In addition, in the case of an ordinary note, the drawer of a bill undertakes to pay the debt, in the case of a bill of exchange, he transfers this obligation to his debtor.
A mandatory requirement for a bill of exchange is its formation in writing.
Bill of exchange interest rate
In respect of a bill of exchange, the due date of which is the day of submission or the period agreed upon after submission, the drawer may determine the term for the accrual of interest.
The term for the payment of interest on a bill of exchange can be presented only to the specified types of a bill of exchange, in relation to other types – it is unwritten.
When such a term is added, the interest rate becomes a mandatory requisite. In its absence, this condition is unwritten.
Accrual of interest on a bill of exchange (in the absence of a specially agreed date) starts from the date of its formation.
Obligatory details of a draft
A draft is strictly formal documents, therefore, like any security, it has mandatory details.
An obligatory note has the following details:
- bill label, that is, the designation of the document with the word – “obligatory note – an unconditional obligation to pay a specified amount of money;
- indication of the amount of money in figures and in words (corrections are not allowed);
- payment term;
- place of payment;
- name and address of the beneficiary of the payment to whom or by whose order it is to be made;
- place and date of formation (day, month and year);
- the signature of the drawer – provided to them in their own handwritten pattern.
The bill of exchange has the following details:
- name or bill of exchange – “bill of exchange – an unconditional requirement to pay a certain amount of money on a bill of exchange;
- indication of the amount of money in figures and in words (corrections are not allowed);
- payment term;
- place of payment;
- name and address of the payee;
- place and date of compilation;
- name and location of the payer;
- the drawer’s signature.
Draft amount
It is clearly written down in the agreement in figures and in words. Any reference to other obligatory notes is prohibited. If present, the bill of exchange is invalidated. If there is a difference, the amount in words is considered correct.
If several numbers are indicated, then the smallest is taken into account. Interest is additionally charged on the nominal draft at the rate specified in the agreement. When transferring an agreement between several persons, splitting the debt amount is not allowed.
The payer’s address (legal entity or individual) is indicated at the bottom left.
Payment draft term
The draft legislation establishes the following payment terms for it:
- after sight – payment is made upon the draft presentation. It must be presented for payment within one year from the date it was drawn up, but the drawer may stipulate the terms of presentation for payment, for example, “… upon presentation, but not earlier than March 1 ¼ of the year”. In case of delay, the bill loses its bill of exchange;
- at a certain time from presentation – payment is made after a certain period of time after the date of the bill presentation. The latter is fixed by a mark on the face of the bill, which is actually an agreement to pay or the day of protesting the bill in acceptance;
- at a certain time from formation – payment is made after a certain number of days after drawing up a bill;
- on a certain day – payment occurs on the day specified in the bill.
If the due date is not specified in the bill, this means that it is payable after sight within a year from the date of the bill. A bill of exchange that does not simultaneously indicate the dates of the formation and the due date is invalid.
Place of payment – this is usually the location of the payer, unless otherwise specified in the bill. If the place of payment is not indicated in the bill, then the location of the payer will also be considered. In the absence of the place of payment and the location of the payer in the bill of exchange, the bill is considered invalid. A bill of exchange will be invalid if it contains several places of payment.